Retail Stocks Showing Suprising Strength

SUMMARY:
- Market rebounds as stocks, dollar, oil reverse their tests.
- Retail stocks showing surprising strength for an economy heading toward further angst and recession.
- Calendar says it is a tough time for stocks as they set up to resume the rally and take on key resistance.

Key market elements rebound after their tests.

After a week spent testing and retrenching following strong moves, a triumvirate of key areas resumed their new trend moves to end the week. Stocks, the dollar, and oil all had to test their recent surge, or in oil's case, purge. NASDAQ, NASDAQ 100 and SP600 spent the week testing back to key support at the 50 day EMA and 200 day SMA. The dollar tested its strong surge, finding support at a key level it just cleared. Oil rebounded to test key resistance at 122 where it bottomed in early June before exploding higher on that massive run to 147. They all found support or resistance as the case may be, and on Friday they resumed their more recent trends.

These areas all interrelate. The dollar's strength has weakened oil, breaking the spiral higher in commodities prices as the dollar spiraled lower. Lower oil, along with its failure at key resistance Friday, is breathing life into the US economy and thus stocks as indicated by the strength in small caps and consumer areas such as retail stocks. They moved in ne trends together, tested together, and then resumed the tests Friday after the tests.

There was some good news you could attribute as a trigger, e.g. some solid earnings in the retail sector (ARO, GPS, and FL) and a rumored buyout of LEH. That, however, was not the reason for the move. Stocks had tested, the dollar had tested, and oil had tested, and all were ready to resume their moves. That is what they did.

TECHNICAL. Intraday it was low to high, turning back to a more bullish picture as it should. Typically the intraday action reflects the action of the day, i.e. low to high on the upside sessions. You have to look at the transition days, those days where there was no definitely clear winner for the day. On this week the transition days showed some backbone.

INTERNALS. Solid 2.5:1 breadth on both NASDAQ and NYSE. Volume was nonexistent and you can thus downgrade the session based on that, but that is how it goes at the end of summer. There is very little trade right now and what trade there is at least shows higher trade on up sessions. Not much accumulation but some accumulation, and that keeps the rally going near. Longer term this volume no doubt that leaves the rally over the past three weeks subject to getting sold off as more money managers get involved, especially as the rally moves toward September, historically the worst month of the year for stocks. That remains to be seen. For now stocks are moving even if it is on light volume.

CHARTS. SP600 held the 200 day SMA while NASDAQ and NASDAQ 100 held the 50 day EMA and all bounced nicely. That was the key for the week, and while volume was boringly low, they held where they had to and then bounced. That sets up the move back to test those June and July highs.

LEADERSHIP. Rails are rebounding as transports are still in the leadership mix. Rails are helped by high fuel costs given they are cheaper for freight, but truckers are not in the doghouse themselves. Retail continues to improve with more and more basing up and moving higher. Economically sensitive stocks doing well, and that is the hallmark of this move. Medical and healthcare remains solid. Financials are trying to base in this up and down market action, putting in the necessary work to put in a bottom for longer term. It is still tenuous, but stocks are putting in the work to form bases.

SUMMARY. The prior week we talked of the need for SP600 and NASDAQ to test further and this past week they did just that. They went a bit deeper than the 18 day EMA, but they held key support, held tight for a couple of days in a tremendous amount of gloom, then started to bounce Friday. Sure the indices finished lower for the week, but they have done what they needed to do if they are going to make another move: consolidated the last rally, held support, and put leadership in position to bounce again to take on the prior highs and key resistance. That is about all you can ask.


THE ECONOMY

Economic gloom is high yet there are market signs the economy is not as bad as thought.

Friday even Uncle Ben Bernanke voiced his concern about the US' economic future. Yes he believes inflation will mitigate over the next year, but his overriding worry was the economy would remain weak.

You hear it every day about how weak consumers are, the bad housing market, more financial shoes to fall. On top of that Europe is heading lower fast with the UK on Friday reporting a stagnant quarter of growth after a string of gains. Of course it is an election year so the economy is the target for everyone. McCain says it is fundamentally sound and it obviously is as there is not dive lower in output. Still we all know that the slowdown is real, palpable, and painful. Thus it is the punching bag.

Talk is always negative when the economy is in a decline, even if the economy is bottoming. Bottoming? Housing has bottomed even though inventories remain high. Prices are diving appropriately and starts continue to fall, holding below 1M that historically marks a bottom. It is not rebounding but it has bottomed. The data is also spinning off prior recession high levels. How many times have you heard of late that a report has hit a 1981 or 1991 high? Those were real recessions and the current levels are up there. This isn't a deep recession in terms of GDP output (though GDP is inflated thanks to exports and a weak dollar leading to less import buying) and our typical indicia of recession ending economic levels are being matched.

Further, look at those economically sensitive areas that thrive when the economy turns up. Small caps are leading this move higher. While this rally has yet to show it is more than a late summer rally for the large caps, the small cap indices are set up with higher lows to attempt a higher high. If they can do that, they show there is something more here than just an interim rally in a continuing bear market. Retail stocks have formed bases after long, ugly slides. All of the sudden they are popping higher (RL, URBN, JNY, LTD), moving nicely and on volume out of long bases that have built a solid foundation for long rallies. Transports continue to look solid having rallied already, basing/testing of late, and now ready to move back up and lead some more.

These are all inexorably tied to improving economic activity, or more to the point, anticipating improving economic activity. The economic 'stimulus' is spent yet the retail stocks were setting up even before the checks were cut and they are breaking out even after they are spent. Their breakouts are not low volume wisps of hope, but solid volume buying. That is not forecasting more economic slowing but economic recovery 5 to 9 months down the road. We are still watching the small caps closely, but thus far they are forecasting some very interesting times for the economy, and we are not talking more meltdowns in financials, at least not the kind that is going to stymie the economic recovery.


THE MARKET

MARKET SENTIMENT

VIX: 18.81; -1.01
VXN: 22.38; -0.77
VXO: 20.47; -0.79


Bulls versus Bears:

For the second time this year bears are crossing above bulls, doing so basically where they did in March on their way to much more extreme readings just about the time the market made the March low and started the last rally. Positive for the market and if SP500 is going to hold the long term trendline is the place to do it.

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

Bulls: 40.7%. Still moving up, rising from 34.0%. After this week, however, bulls should post another decline. Topped the 35% level that is considered the demarcation between bullish and bearish indications. Above 35% is not as bullish. A long way up from the 27.8% on the low this round. Hit 31.9% two months back and the 30.9% low hit in March. Steep drop from a rebound high at close to 50% on the run through May. In March the indicator did its job with the dive below 35% and the crossover with the bears. Now it is going above and beyond. Bulls and bears have crossed over again, doing so even before the prior lows are hit. The bulls and bears were eye to eye in mid-February and have crossed. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator. This is smashing that. For reference it bottomed in the summer 2006, the last major round of selling ahead of this 2007 top, near 36%, and 35% is considered bullish.

Bears: 38.4%. Dropping hard from 43.6% and down from 50.0% a month back, the high on this move. Still above the 35% threshold so still a bearish indication. A steady rise to 50% on this move: 48.9%, 47.3%, 44.7% and 39.3% before that. A steady, strong rise. Well above the bullish level and the highest since 1995. Again, that is one of the best indications that sentiment is getting extreme on the negative side. It is again past 35%, the level that historically indicates too much pessimism. As with the bulls the jump in bears did its job after hitting 44.7% in the third week of March that was up from an already freakishly strong 43.3% the week before. Up sharply from a low of 19.6% on the last rally. Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). This is a huge turn, unlike any seen in recent history.


NASDAQ

Stats: +34.33 points (+1.44%) to close at 2414.71
Volume: 1.396B (-10.43%)

Up Volume: 1.109B (+642.193M)
Down Volume: 248.565M (-799.484M)

A/D and Hi/Lo: Advancers led 2.44 to 1
Previous Session: Decliners led 1.64 to 1

New Highs: 42 (+2)
New Lows: 92 (-14)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ, despite its decline for the week, made a higher low at the 50 day EMA Thursday, rallying that session off of that low. It then gapped higher Friday and rallied to the 200 day SMA on the close. That puts it into position to take on the August high and then the key May and June peaks at 2550. It is holding over the February high, but it needs to go ahead and make the next move. Did what it had to this past week but the work is not over.

NASDAQ 100 showed the same action for the week, even holding at the 50 day EMA and bouncing nicely off that level. Set up well to make the run at the August high and key resistance at 2000 and then the peaks at 2050.

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg


SP500/NYSE

Stats: +14.48 points (+1.13%) to close at 1292.2
NYSE Volume: 888.139M (-2.65%)

Up Volume: 649.48M (+184.872M)
Down Volume: 233.11M (-199.54M)

A/D and Hi/Lo: Advancers led 2.54 to 1
Previous Session: Decliners led 1.23 to 1

New Highs: 17 (+8)
New Lows: 61 (-75)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

No volume (as was the case the entire week) but SP500 moved up through the 50 day EMA on the close after making a higher low this past week. Still a big struggle given the financials are still the albatross around its neck, but even the financials are basing - - though they are still way off the point where they are there.

SP600 (+1.74%) was the market leader again, making a higher low over the 200 day SMA and bouncing nicely Friday. SP600 dipped a bit more than we wanted for a run at the prior highs (400 in August, 402 in June), but it has made its test and it is in good position to do it.

SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg

SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg


DJ30

The blue chips held above the early August low and Friday put in one of the best moves. That took it up to the 50 day EMA on the close and in position to take out the August peak. Much less ambitious than the other indices, but with its market leading decline, any solid moves higher are a bonus.

Stats: +197.85 points (+1.73%) to close at 11628.06
VOLUME: 138M shares Friday versus.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg


MONDAY

So now the market did what it needed to do, i.e. test the prior move better and bounce off support, can it make more of what Friday started? Oil tested its breakdown and folded while the dollar tested last week and rebounded. If those continue this same action that will only help to benefit stocks.

The stock market also needs to sidestep or outright avoid any further really bad news from financials. There was a lot of gloomy talk swirling last week, but as noted at the time, even with all of that gloom the market held support and then started to rally back. No great volume, a late summer move, still resistance to deal with, and September looms. Yet it showed some backbone in the face of adversity. It won't withstand truly devastating news in the financial sector, but maybe that won't come. As noted above, there are indications in certain sectors that smart money sees a recovery coming.

We will see. While we see those changes we can only take what the market is giving now, and there is continuing improvement in stock patterns as new stocks work on setting up patterns to present buying opportunities. As long as we see growth stocks setting up and then breaking higher, we will buy into the move and take what the market is giving. If the rally survives the improbability assigned to it by most commentators, huge gains await. If it cannot withstand September and fails to take out those summer highs then we close up the upside and wait for a bottom to try and form after September and sometime in late October. That means we keep watching how SP600, NASDAQ, and the cadre of leadership (retail, healthcare, tech, rails) as they continue to lead this move. We also watch how the financials set up and if they can finally form some plausible bases. The market has to have them moving higher at some point in order to sustain any recovery. Right now they are working on it, but they need the current leaders to buy them more time, and that is what the leaders have been doing.


Support and Resistance

NASDAQ: Closed at 2414.71
Resistance:
2419 is the January 2008 peak and the early February peak
The 200 day SMA at 2420
2451 is the August closing low
2483 is the mid-June interim peak
2500 from interim August 2007 lows and early May 2008 interim peak
2551.50 is the May peak; 2550 is the June peak
2603 is the early January gap down point

Support:
2392 is the April 2008 peak
The 90 day SMA at 2395
2388 is the June 2008 low
2386 is the August 2007 intraday low
2378 is the mid-February peak; 2379 from the October 2006 peak
2370 from the April 2006 peak
The 50 day EMA at 2367
2348 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
2340 from the March 2007 low
2286 is the first April 2008 gap up point.
2261 is a March 2008 interim low
2202 is the January 2008 low
2155 is the March 2008 low


S&P 500: Closed at 1292.20
Resistance:
The 50 day EMA at 1291 is bending
1317 from the February low
1320 is a 50% retracement of the May to July selloff
1324 is the April low
The 90 day SMA at 1330
1331 is the June low
1351 is an ancient trendline
The 200 day SMA at 1363
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
1387 is the April 2008 intraday high
1396 is the February 2008 peak
1406 is the August and November 2007 closing low

Support:
1285 is the recent July peak
1270 is the January low
1257 is the March low
1244 is an August 2005 peak
1240 to 1221 are September 2005 peaks1234 is the July 2006 low
1234 is the late July low
1224 is the June 2006 low
1176 from the Q4 2005 lows
1167 is the January 2005 low
1154 from the May 2005 lows
1142 is the 2005 closing low

Dow: Closed at 11,628.06
Resistance:
11,634 is the January intraday low
The 50 day EMA at 11,640
11,644 is the 2004/2005 up trendline
11,670 is the May 2006 intraday high; 11,642 closing
11,731 is the March 2008 low
11,982 is a 50% retracement of the May to July selloff
The 90 day SMA at 12,044
12,050 from the March 2007
12,070 from the early February 2008 lows
12,250 from late March 2007 lows
The 200 day SMA at 12,405
12,518 is the August intraday low
12,573 is the mid-February high
12,743 is the November low
12,750 to 12,768 is the February 2008 peak and a series of lows and highs from August 2007
12,786 is the February 2007 peak
12,845 is the August closing low
13,092 is the December 2007 intraday low
13,133 is the May 2008 high

Support:
11,500 is the up trendline off the July low
11,388 is the prior August low
11,317 from March 2006
11,131 is the late July 2008 low
11,061 from February 2006
10,912 peak from March 2005
10,854 from December 2004
10,701-10,705 from July 2006, July 2005


Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

August 25 - Monday
Existing home sales, July (10:00): 4.90M expected, 4.86M prior

August 26 - Tuesday
Consumer confidence, August, (10:00): 53.0 expected, 51.9 prior
New home sales, July (10:00): 523K expected, 530K prior
FOMC minutes (2:00)

August 27 - Wednesday
Crude oil inventories (10:35): +9.39M prior

August 28 - Thursday
GDP, Q2 preliminary (8:30): 2.7% expected, 1.9% Q1
Chain deflator, Q2 (8:30): 1.1% prior
Initial jobless claims (8:30): 432K prior

August 29 - Friday
Personal income, July (8:30): -0.1% expected, +0.1% prior
Personal spending, July (8:30): 0.3% expected, 0.6% prior
Chicago PMI, August (10:00): 49.9 expected, 50.8 prior
Michigan sentiment, final August (10:00): 62.3 expected

By: Jon Johnson, Editor
Copyright 2008 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Expiration Goes Out Like A Lamb

SUMMARY:
- Expiration goes out like a lamb as market holds gains for the week.
- New York manufacturing clicks unexpectedly to positive, industrial production lower but hangs in positive territory.
- A state of denial: ECB bankers claim Europe economy 'robust' as it slips toward recession.
- Looking for stocks to wake up to take on next resistance

Quiet expiration week never gets roaring.

You kept expecting some kind of action. It did not come on Tuesday. Wednesday was quiet as was Thursday. Yes stocks were up and down, but volume was tame. It never got the expiration ramp higher. As a result, stocks wandered up and down Friday, starting on the high side, losing the gains, then bouncing up and down the rest of the day. No big gains, no big losses, just status quo, holding most of the gains taken on the week as well as holding key levels crossed during the week (200 day SMA SMA on NASDAQ, 50 day EMA on SP500).

The news was a veritable cornucopia of data. New York manufacturing turned positive, posting its highest reading in 8 months. Production beat expectations, managing to hold positive (0.2% versus 0.0% expected, 0.4% prior). On the other hand, the ECB announced GDP fell -0.2% for Q2. Retail earnings beat the street but guidance was lowered by many, yet the stocks posted gains. KSS bucked the trend, raising its guidance, and joining a familiar pattern among many solid retailers, i.e. clearing the 2008 recovery highs in May, a breakout from a double bottom base. Seeing many old name retailers setting up with similar patterns and breaking higher or ready to break higher.

On top of stock specific news, the recent trends in commodities intensified. The reason: the dollar's gain intensified. Friday it broke through the upper down trendline formed off the Q4 2005 peak. That was just an interim peak off the triple top spanning late 2000 to early 2002. Interesting. That is, of course, when the Bush administration took over. Before Bush dollar at an all-time high. After Bush, dollar at an all-time low. There are many factors at work here, but it also shows that when an administration does not support the currency, the door is open for everything else to take it down.

As the dollar rebounded through that trendline, oil sold off, still unable to bounce, closing at 113.77, -1.24. It is still in position to bounce off of some support at the early May low, but thus far each attempt to bounce has been outstripped by dollar gains. Friday all commodities were pounded; it seemed as if the drive through that trendline took the life out of them . . . along with the decline in European GDP. All of that is interrelated of course as lower world economic output means lower demand for commodities and likely diluted currencies, that strengthens the dollar which further weakens commodities, repeat chorus. As you can see, currency issues are very sensitive, and when the snowball rolls, it gets bigger and bigger. Gold was crushed as well of course, falling below $800 on the close (793.00, -21.50). It managed to hold at the November and December 2007 lows and after such a beating it will likely try a relief bounce.

TECHNICAL. The Friday intraday action was up and down in typical expiration fashion. Overall for the week, however, the intraday movement was improved with general trends from lower to higher with the propensity to drift higher in the absence of any real catalyst. That is how an overall bullish market acts in price terms.

INTERNALS. Breadth was flat as a pancake Friday. Volume was up on NYSE for once this week, but it was still well, well below average so it was nothing major. Indeed the entire week's volume was nothing major. Of course even if it had been up it would be anything to latch onto. The fact that trade was so low, however, is quite interesting. Typically volume runs higher at expiration as those on the wrong side of the trend have to get out or roll over positions. Thus the volume surges. The lack of volume shows that many are already out of those positions contrary to the current trend and thus there is not the need to get out of or roll positions. That means more bullish positioning by investors overall. With bullish sentiment still light and bearish sentiment still strong there is no real issue yet with getting a crowded upside trade. Plenty of money out there to be drawn in by the upside move as more throw in the towel.

CHARTS. NASDAQ took the 200 day SMA back on Thursday and it managed to hold on Friday. SP500 managed to retake the 50 day EMA late in the week. NASDAQ 100 captured the 200 day SMA early in the week, tested it, and started higher again. SP600 blasted higher to start the week, tested and then was racing higher Friday to a new high on this rally. That took it just below the June 2008 peak. Good action for most of the indices, but as noted Thursday, the push off the quick test of the Monday move looks a bit too early to take out the prior highs. That makes us a bit wary of this particular run at the 2008 peak.

LEADERSHIP. Some new tech faces are showing up and shaping up to move higher out of some good bases. They are not breaking to new highs necessarily (though some are), but they are coming out of downtrends with good bases. Very similar action in the retailers as noted above. Internet was moving nicely as well on the week. These new areas are joined by some of the early leaders in this move, particularly healthcare/medical/drugs, biotech, and trucking. Weak areas included heavy construction, commodities, machinery, agriculture: all have ties to the overseas economic plays, and given the weakness these economies are getting blistered to the downside. The former Big 3 leaders are in steep corrections.

SUMMARY. The key for the week ahead is how SP600 (small caps), the leader in this rally, reacts as the prior 2008 peak, just 6 points off that level. Foreign markets are weakening as their economies sag, and thus the US industrials with those multinational ties are weaker; they have lagged on this rally and lagged bad. Now that alone would not necessarily benefit the small caps: if money leaves one sector it doesn't have to go to another. If, however, the US economy is already pulling out of its shallow recession these stocks would indeed lead as they are now. Thus if they power through the June recovery high that is a very good sign for this rally and indeed for the economy. On the other hand, if the index rolls over hard as it did in June right after making that breakout, indeed the day after, that means this rally is likely over unless the laggard SP500 throws in with NASDAQ and moves up into the lead. That requires the financials to recover, and that would mean the economy would be recovering so the small caps would lead as well . . . you can see that the small caps have to do well.


THE ECONOMY

We were not kidding: Europe is really slowing.

When I wrote earlier in the year that Europe was seriously slowing I received a lot of mail wondering what planet I was living on. What we were hearing, despite a dinner in Paris running US $1,000, was a real slowdown in manufacturing output and some worry among the average person on the street. That has cascaded over the past two months, resulting in a -0.2% Q2 GDP growth rate.

Of course the European Central Bank (ECB) has, at the same time we were hearing of slowing in Europe, ratcheted up its rhetoric with respect to inflation and how it was rising and it had to be stopped. That is its mandate: control inflation. There is no counterbalance to that as in the US, i.e. ensuring price stability while achieving maximum sustainable growth rates. Thus when it sees inflation it talks loud about stopping it.

That is unfortunate. As discussed Thursday night and many times prior, inflation rises as the economy slows, not vice versa as many old school textbooks preach. What happens when economies tank is that inflation jumps. In countries where there is a weak central bank it tends to explode. Eventually it fades, but that is after the economy collapses. In the 1970's our economy was as stagnant as a small pond in a hot southern dry spell. Yet inflation was running wild. When our economic activity was spurred by tax incentives and reduce regulations, inflation fell. It remained under control for two decades until this spike that had its roots in the 2000-2001 recession and interest rates were held at 1% for much too long by the Greenspan Fed.

As for Europe, with its sole inflation fighting mandate, it has to attack inflation. In doing so it has thwarted dozens of economic expansions on the continent. That is why 3% growth is rip-roaring in Europe. That is why Europe never grows more than 3% because once it gets that high the ECB assumes, just as the US central bank in the late 1920's, that inflation has to follow. It starts hiking and not surprisingly truncates the expansion.

In this situation it is even more unfortunate as Europe is truly in a slowdown and does not need the ECB to hike rates. The rhetoric was strong on Friday, however, as ECB officials, despite the 'sudden' drop in GDP, characterized the economy is in a 'robust state' and that the 'economic dry spell should not mislead us into talking up the danger of recession.' As the kicker to the statement it was said that inflation risks had worsened. Of course they have; as discussed, inflation picks up as an economy slows. It picked up as our economy slowed the past year. That is normal. What you have to do is encourage growth to get out of it not stomp the life out of what life is left in the economy.


THE MARKET

MARKET SENTIMENT

VIX: 19.58; -0.76
VXN: 22.52; -0.08
VXO: 21.5; -0.61

Put/Call Ratio (CBOE): 1; +0.13. Moved up to average as expiration rolled around. This looks to be the only indication there was an expiration, i.e. a lot of put activity as the indices moved higher.


Bulls versus Bears:

For the second time this year bears are crossing above bulls, doing so basically where they did in March on their way to much more extreme readings just about the time the market made the March low and started the last rally. Positive for the market and if SP500 is going to hold the long term trendline is the place to do it.

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

Bulls: 34.0%. Looks as if it held even for the week, but we will have to verify this data further. If so it is still below the 35% level and thus bullish though moving up well off the lows. Jumped up from 30.0% closing in on that 35% level, below which is bullish. Still bullish though a long way up from the 27.8% on the low this round. Hit 31.9% a month back and the 30.9% low hit in March. Steep drop from a rebound high at close to 50% on the run through May. In March the indicator did its job with the dive below 35% and the crossover with the bears. Now it is going above and beyond. Bulls and bears have crossed over again, doing so even before the prior lows are hit. The bulls and bears were eye to eye in mid-February and have crossed. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator. This is smashing that. For reference it bottomed in the summer 2006, the last major round of selling ahead of this 2007 top, near 36%, and 35% is considered bullish.

Bears: 43.6%. Holding flat as well, making the new data suspicious given the market rise. A steep drop the prior week from the 50.0% peak on this move 2 weeks back. Still well above the 35% threshold so still a LOT of bearishness out there. This bounce off the July lows is instilling some confidence, however. A steady rise to 50% on this move: 48.9%, 47.3%, 44.7% and 39.3% before that. A steady, strong rise. Well above the bullish level and the highest since 1995. Again, that is one of the best indications that sentiment is getting extreme on the negative side. It is again past 35%, the level that historically indicates too much pessimism. As with the bulls the jump in bears did its job after hitting 44.7% in the third week of March that was up from an already freakishly strong 43.3% the week before. Up sharply from a low of 19.6% on the last rally. Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). This is a huge turn, unlike any seen in recent history.


NASDAQ

Stats: -1.15 points (-0.05%) to close at 2452.52
Volume: 1.776B (-6.02%)

Up Volume: 846.361M (-579.202M)
Down Volume: 913.75M (+542.915M)

A/D and Hi/Lo: Decliners led 1.1 to 1
Previous Session: Advancers led 1.56 to 1

New Highs: 92 (+12)
New Lows: 76 (-11)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ gapped higher to end the week but it could not hold the gains, closing flat. The week saw NASDAQ test and then break through the 200 day SMA (2430) though volume on the move was quite low. NASDAQ cleared the interim highs that could have held it in check and formed a right shoulder to a head and shoulders pattern. Instead it broke through and is now looking at recistance at 2475 (tested Friday), 2500, and then the May and June double top peaks at 2550. This move over the 200 day SMA needed a bit more testing before continuing, and we may see that at the start of the week. It has moved very well and is a leader, and this week will be important in shaping what happens with this rally as the summer draws toward its end.

NASDAQ 100 (-0.35%) formed a beautiful cup with handle base the past 10 weeks and then broke out Thursday though volume was nil. It needs more to send it higher and we will not be surprised to see a bit of a pullback for some more testing this week before it makes another true run at next resistance at 2000 (closed at 1957) and the June peak just over 2050.

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg


SP500/NYSE

Stats: +5.27 points (+0.41%) to close at 1298.2
NYSE Volume: 1.176B (+16.59%)

Up Volume: 737.794M (+71.196M)
Down Volume: 428.751M (+94.928M)

A/D and Hi/Lo: Advancers led 1.1 to 1
Previous Session: Advancers led 1.73 to 1

New Highs: 52 (+22)
New Lows: 94 (+9)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

Truly an up and down week for SP500 as it tried to get on track and provide some support for NASDAQ and SP600. IN the end it managed to close over its 50 day EMA after taking it early then giving it up. It is continuing its higher lows and is in decent position to break higher once more, but it is truly struggling to string together several good sessions. The financials have to contribute at some point or the rally will not hold. The patterns overall in financials, however, remain poor.

SP600 (+0.17%) enjoyed a stellar week though most of it was frontend loaded. Big surge then a quick test before rallying again Thursday. Friday it hit 400, just 2 points below the June peak before fading to flat. Too much too soon form the look of it and a pullback this week would not be surprising. Holding 390ish on that move would be nicely done for another run with some authority to try that June peak.

SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg

SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg


DJ30

Really struggling. It is trending higher as well with those higher and higher lows, but after breaking the 50 day EMA and extending that move Monday, it gave it up on Tuesday and never recovered it though it moved over that level Thursday and Friday intraday. Industrials on the index are weighing it down as prospect for their overseas sales dim.

Stats: +43.97 points (+0.38%) to close at 11659.90
VOLUME: 215M shares Friday versus 159M shares Thursday. Up Friday but well below average all week.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg


MONDAY

Economic data includes PPI, housing starts, and the Philly Fed as the high points. Commodities, oil and the dollar will continue to have their influence as a major dynamic. Financials are going to direct SP500's move. Then there is the action on SP600 and NASDAQ, the leaders in this rally.

Problem is, they both need the financials to wake up and help out. The patterns in many big name financials, however, after perking up some, have failed to continue building good patterns. That leaves a big hole in the rally that the growth stocks have filled thus far, but they are facing a key test just ahead.

As discussed, SP600 is facing the June high and with the move to this point it is extended and the modest pullback Tuesday and Wednesday was not really enough to give it a good springboard over the June peak. There are no indications of a breakdown, and there is still good leadership in place and forming up, but looking ahead the trade is light, we are approaching the end of summer, a traditionally tough time for stocks heading into September and October.

Expiration week saw some solid moves from some good stocks in good bases. Leadership has improved but is still relatively thin. Volume is of course very light. That simply means we have to be flexible and realize that a light volume rally even with some good leadership will have to morph at some point into more strength or fall into another test. SP500 and DJ30 broke to new 2008 lows on the last selling, and typically that is tested before a lasting advance transpires. NASDAQ and SP600 did not make new lows, however, and that means they don't need another test as there was no new low.

With this dichotomy in place with implications in both directions we do what we have been doing. We watch SP600 closely as it sets up below the June peak. We watch leadership and how it holds up and what kind of volume it gets. Most leadership is holding up well though the rails hit some tough sledding last week. We take advantage of the upside in strong, individual stocks when they show good moves. Overall SP600 and NASDAQ could pull back some more here, but we will keep looking for good opportunities in these leading areas until they indicate otherwise.

At the same time we will be ready to close up plays if things start to turn. Would rather be safe overall if the rally starts balking; we can always get back in. We are also going to start looking at more downside plays and have them ready if the low volume rally does roll over, e.g. MOS that we saw Thursday tap the 200 day SMA and then dive lower Friday. In this way we keep on our toes as to what the market can do at this point, what tendencies in past similar situations suggest, and simply take what the market gives whether it breaks to a new recovery high for the year or fails and rolls over for another test lower.


Support and Resistance

NASDAQ: Closed at 2452.52
Resistance:
2483 is the mid-June interim peak
2500 from interim August 2007 lows and early May 2008 interim peak
2551.50 is the May peak; 2550 is the June peak
2603 is the early January gap down point

Support:
2451 is the August closing low
The 200 day SMA at 2430
2419 is the January 2008 peak and the early February peak
2392 is the April 2008 peak
The 90 day SMA at 2390
2388 is the June 2008 low
2386 is the August 2007 intraday low
2378 is the mid-February peak; 2379 from the October 2006 peak
2370 from the April 2006 peak
The 50 day EMA at 2361
2346 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
2340 from the March 2007 low
2286 is the first April 2008 gap up point.
2261 is a March 2008 interim low
2202 is the January 2008 low
2155 is the March 2008 low


S&P 500: Closed at 1298.19
Resistance:
1317 from the February low
1320 is a 50% retracement of the May to July selloff
1324 is the April low
1331 is the June low
1349 is an ancient trendline
The 200 day SMA at 1369
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
1387 is the April 2008 intraday high
1396 is the February 2008 peak
1406 is the August and November 2007 closing low

Support:
The 50 day EMA at 1294
1285 is the recent July peak
1270 is the January low
1257 is the March low
1244 is an August 2005 peak
1240 to 1221 are September 2005 peaks1234 is the July 2006 low
1234 is the late July low
1224 is the June 2006 low
1176 from the Q4 2005 lows
1167 is the January 2005 low
1154 from the May 2005 lows
1142 is the 2005 closing low

Dow: Closed at 11,659.90
Resistance:
11,670 is the May 2006 intraday high; 11,642 closing
The 50 day EMA at 11,679
11,731 is the March 2008 low
11,982 is a 50% retracement of the May to July selloff
12,050 from the March 2007
12,070 from the early February 2008 lows
The 90 day SMA at 12,098
12,250 from late March 2007 lows
The 200 day SMA at 12,460
12,518 is the August intraday low
12,573 is the mid-February high
12,743 is the November low
12,750 to 12,768 is the February 2008 peak and a series of lows and highs from August 2007
12,786 is the February 2007 peak
12,845 is the August closing low
13,092 is the December 2007 intraday low
13,133 is the May 2008 high

Support:
11,644 is the 2004/2005 up trendline
11,634 is the January intraday low
11,388 is the prior August low
11,317 from March 2006
11,131 is the late July 2008 low
11,061 from February 2006
10,912 peak from March 2005
10,854 from December 2004
10,701-10,705 from July 2006, July 2005


Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

August 19 - Tuesday
Building Permits, July (8:30): 949K expected, 1.091M prior
Housing starts, July (8:30): 963K expected, 1.066M prior
PPI, July (8:30): 0.6% expected, 1.8% prior
Core PPI (8:30): 0.2% expected, 0.2% prior

August 20 - Wednesday
Crude oil inventories (10:35): -316K prior

August 21 - Thursday
Initial jobless claims (8:30): 450K prior
Leading Economic Indicators, July (10:00): -0.2% expected, -0.1% prior
Philly Fed, August (10:00): 62.0 expected, 61.2 prior

By: Jon Johnson, Editor
Copyright 2008 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Market Breaks Some Resistance

SUMMARY:
- Sharp upside response to Thursday selling as a stronger dollar, cheaper oil overrun financial fears, a new Russian war.
- Productivity rising on rising unemployment.
- Dollar puts in a years worth of gains in a couple of weeks.
- Market puts in another higher low, breaks some resistance as the summer rally off the July low rides higher.
- After such major declines, oil and gold will retrench, dollar will do the same.

Market acting as if it doesn't want to stay down thanks to lower oil and higher dollars.

Friday capped an upside week in a big way. The week was not all upside, starting out with a sharp decline but then a sharper surge. Thursday tried to take it all back but Friday stocks surged once more as the indices broke through the next level of resistance.

The Friday surge was a good response to Thursdays selling that threatened to scuttle the higher low and the earlier upside moves. Friday was a classic low to high rally as the market rode lower early, following through on the Thursday afternoon Moody's-induced selloff, but then reversed and surged nicely through the first hour and then flattened the trajectory but continued higher in a steady solid rally into the close.

There was reason enough for some early weakness. There was the hangover from the AIG massive earnings miss and Moody's warning on AXP. Russia and Georgia were at it again, this time in all out earnest with tanks rolling and fighter jets bombing. One thousand were said dead in the initial clashes, and the threat to stability all over the area is very worrisome.

Despite those issues, oil came to the rescue, continuing its slide and now dive lower. Russia and Georgia are big oil areas, yet oil paid no heed, falling $4.82 to 115.20, its lowest level in three months. The dollar surged, capping a huge run the past two weeks. Gold fell another 15 points to 863. The oil trades are unwinding and along with them other commodities, the dollar shorts, and the gold longs. This makes for some powerful undercurrents steering the markets as major amounts of money is shuffled.

The result being the summer rally off the July low continues, making another higher low as the indices rallied up through the next resistance point. Some classic stocks are breaking to new all-time highs (MCD, JNJ) as the market leadership tries to fan out. The question is whether NASDAQ has set a double bottom and is control of the action or the NYSE large cap indices that undercut their early 2008 lows (something NASDAQ did not do) are due for a test of that level when this rally runs out of gas.

For now, you cannot argue with the tape. You can take issue with certain areas such as leadership and overall volume on this last part of the move, but that is always the case. It is a very rare rally that hits on all points. That skepticism helps drive it higher as money is slowly dragged in as manager after manager bites the bullet and puts a bit more money to work. When everyone decides the water is safe there is a big surge and then the money is all used up and the market rally fails. Given the sentiment readings and what you hear on the financial stations we are far from that point.

TECHNICAL. Intraday the action was classic as noted above: lower sluggish start followed by a rally to close at session highs with 2+% gains on all of the indices.

INTERNALS. Solid breadth at 2.8:1 on NYSE and 2.5:1 on NASDAQ, a little worse than the Thursday downside on NYSE but better than the 1.9:1 downside on NASDAQ that day. Volume was lower on both NASDAQ and NYSE though just modestly so, but that kept trade below average though NASDAQ was close to that level. NYSE trade continues to lag. Internally a mixed day given the volume, though lower trade on a Friday in late summer is pretty typical. Still, you like to see better trade when the indices make strong upside moves and break through some key resistance points. The volume gives the move legitimacy and typically a longer life. As it is, a raft of new bad financial news could have the AIG/AXP affect all over when those that were out of the market Friday decide to try and sell it again.

CHARTS. SP500 and DJ30 rallied through their 50 day EMA as well as started again to try a move through the January and March 2008 lows they broke during that July selloff. Higher low once more, taking out some resistance. Not bad, but they are still in the teeth of resistance and have yet to recover to the 50% retracement level. NASDAQ on the other hand, has blown past the 50% retracement level as well as the early April peak and early February peak, starting to break up any potential head and shoulders trying to set up. NASDAQ is a growth index for the most part though many of the NASDAQ 100 are not really growth anymore (MSFT, DELL, INTC). SP600 is also a growth index as the small caps thrive or die on the economic winds. SP600 blasted through its 200 day SMA and the February peak, looking ready to take on the June high. The leadership these two indices are providing is a good sign for economic activity ahead, and given the dump in oil prices, some uptick in the economically sensitive stocks makes some sense.

LEADERSHIP. As noted above, some large cap, old school stocks made new highs on the Friday surge, but they were not the only ones as medical/health services came back along with technology and pretty much everything not oil or commodities. Leadership is trying to fan out as this recovery is allowing stocks in technology, retail and even financial to base out and lay the foundation for moves higher. There is still a lot more work to be done, and before it is all over the NYSE indices will likely need to test the July low to finish its base and to let the rest of the market do the same. For now, as we have seen over the past several weeks, however, there are leaders that are moving up and making us money even as most stocks work through the struggle of forming a base, the old up a day or two then give it all back and start over. It is a tedious process but necessary in a recovery after this kind of selling.

SUMMARY. The market rode a precipitous drop in oil and gold and an equally precipitous rise in the dollar to a new high on this rally off the July low. There are problems with it and the lack of a plethora of leadership indicates another decline on NYSE is likely, but for now you ride the trend that is working, and this one is working.


THE ECONOMY

Productivity holding its own, but it is not due to implementing new technology.

Back in the last bust in 2000 and the subsequent recovery, a lot of that tech equipment that was made in the 1990's was actually put to use as companies, after Congress passed tax incentives that made it worthwhile to buy new equipment, finally started to spend again. When they did they bought equipment that would help them produce as well as keep overhead low through fewer employees. The tech bust left many with too many employees and they didn't want to get into that position again. So they bought a lot of productivity enhancing equipment and put it to work. That is one reason jobs just did not rise as they did in prior recoveries. Of course the bigger reason is that many started their own businesses in the last bust because there were no jobs coming back, but you get the point with respect to why there was increased productivity.

Right now the situation is falling non-farm payrolls and a rising unemployment rate, i.e. there are less jobs in the economy. If companies keep producing even with fewer workers, productivity has to rise. This recession is thus far pretty shallow, and that is why production is continuing. With fewer employees productivity is indeed rising. There has not been an investment surge by businesses thus far as there was in the 2000 recession, and so productivity is rising mainly because with the declining number of jobs, those left with jobs have to do more.

Friday we found out productivity rose 2.2% in Q2 versus 2.6% in Q1. As noted, many pundits are saying productivity is rising because of fewer jobs this year. Okay, so if productivity rose 2.6% in Q1 due to lower jobs and it rose just 2.2% in Q2, could this mean job losses are slowing, i.e. the job loss is less and thus the productivity gains are not increasing as fast because jobs are no longer falling as fast? It could. Problem is, this is not an exact measure, just an indirect indication. Thus while it could very well be the case, by itself it is inconclusive. As a matter of fact, the losses in jobs are NOT slowing based on what the weekly claims are telling us, so drawing a conclusion that slowing productivity gains indicates slowing job declines is tenuous.

What the productivity gains do mean is that productivity is holding nicely at or above the long term 2% growth trend. Rising productivity helps companies produce more for less and maintain or improve profit margins and thus earnings. Thus even with declines in the economy and increases in input prices, rising productivity levels help allay or offset some of those cost increases. Now that commodities and fuel prices decline, there is a combination punch helping out the bottom line, again good for these companies and as earnings drive stock prices, that is ultimately good for the market.


Dollar has an incredible two weeks.

If a currency gains 2% or 3% against another currency in a year, it has put in a good move. Over the past two weeks the dollar has moved 3% against the euro. It has put in a year's move in two weeks. It has made up since mid-July most of what it lost from early February to March, the largest part of the gain coming the past week.

A lot of short positions in the dollar, long positions in gold, and long positions in oil are being unwound right now. Those trades worked well for a long time. They became very crowded. The dollar short was a steady date for the big currency trading firms what with the US government unwilling to back the greenback. When the Fed came up with the lending facilities and the wide open discount window, however, the dollar bottomed as some currency players realized the Fed no longer had to cut rates to achieve its goals. It took awhile to gin up, but after a 4 month base it took off last week as the trades in the dollar, oil and other commodities finally turned. It was a crowded trade as stated above, and when the run for the exits started, the declines were precipitous.

That is a strong impetus for dollar upside as dollars are bought back. Moreover, as noted earlier in the week, anticipation of rate cuts from Australia to Europe and beyond due to weaker economic activity is spurring further buying of US dollars. It is a potent combination that is having immediate impact on our standard of living. Raise the currency and lower prices of energy, commodities, and other foreign goods and you improve your standing. Even without the Bush administration's help, the dollar is surging, likely to the Baker boys' dismay. Sadly another major factor in the rise of the dollar and fall of commodities is due to lower demand for commodities as economies slow across the globe. In response powerful forces are unleashed as massive trading positions are unwound. The dollar is making the inevitable rebound, but the cause of the rebound is not really one of strength, just the balancing of out-of-balance trading positions ironically fostered by the Bush administration's clear disregard for supporting the currency. Amazing how markets work to correct the errors of human policy makers, errors that we make time and again and in this case passed down from one generation to the next via the presidency.


THE MARKET

MARKET SENTIMENT

VIX: 20.66; -0.49. As noted Thursday, volatility is back down to mid-June levels and is a range considered low if you consider 20 to 30 a normal range. It ran to 31 in the mid-July selling, and while likely not enough to cement any kind of permanent bottom for NYSE on this bear market, it was enough to kick off this rally.
VXN: 24.24; -0.51
VXO: 21.88; -0.75

Put/Call Ratio (CBOE): 0.92; -0.13. Closed over 1.0 one session last week, the Thursday selloff. Other than that it has hugged 1.0 but closed below. As noted before, it did all of its work in July when it put in three weeks straight of closes above 1.0, indicating that fear and speculation to the downside was overdone.


Bulls versus Bears:

For the second time this year bears are crossing above bulls, doing so basically where they did in March on their way to much more extreme readings just about the time the market made the March low and started the last rally. Positive for the market and if SP500 is going to hold the long term trendline is the place to do it.

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

Bulls: 34.0%. Jumped up from 30.0% closing in on that 35% level, below which is bullish. Still bullish though a long way up from the 27.8% on the low this round. Hit 31.9% a month back and the 30.9% low hit in March. Steep drop from a rebound high at close to 50% on the run through May. In March the indicator did its job with the dive below 35% and the crossover with the bears. Now it is going above and beyond. Bulls and bears have crossed over again, doing so even before the prior lows are hit. The bulls and bears were eye to eye in mid-February and have crossed. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator. This is smashing that. For reference it bottomed in the summer 2006, the last major round of selling ahead of this 2007 top, near 36%, and 35% is considered bullish.

Bears: 43.6%. Steep drop from the 50.0% peak on this move hit last week. Still well above the 35% threshold so still a LOT of bearishness out there. This bounce off the July lows is instilling some confidence, however. A steady rise to 50% on this move: 48.9%, 47.3%, 44.7% and 39.3% before that. A steady, strong rise. Well above the bullish level and the highest since 1995. Again, that is one of the best indications that sentiment is getting extreme on the negative side. It is again past 35%, the level that historically indicates too much pessimism. As with the bulls the jump in bears did its job after hitting 44.7% in the third week of March that was up from an already freakishly strong 43.3% the week before. Up sharply from a low of 19.6% on the last rally. Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). This is a huge turn, unlike any seen in recent history.


NASDAQ

Stats: +58.37 points (+2.48%) to close at 2414.1
Volume: 2.245B (-1.51%)

Up Volume: 1.719B (+954.463M)
Down Volume: 498.36M (-956.894M)

A/D and Hi/Lo: Advancers led 2.47 to 1
Previous Session: Decliners led 1.91 to 1

New Highs: 83 (+28)
New Lows: 111 (+8)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ broke through the 90 day SMA and some resistance at 2400. In addition it took out the early February closing high and went a good ways toward breaking up a potential 6+ month head and shoulders pattern. It has easily recovered more than 50% of the June to July loss and now is making a run at the 200 day SMA (2439) as its next test. NASDAQ is providing some leadership in this late summer rally. Techs tend to bottom in July and August, and they are certainly giving the look as if they have tried to do the same once more.

NASDAQ 100 (+2.45%) was not the leader but it was the second index of the session and of this rally off the July lows to clear its 200 day SMA. That rounded bottom it was sporting all through July as the market dove lower is paying off with some early leadership. Those RIMM positions picked up Thursday and the others in late July are quite nice right now.

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg


SP500/NYSE

Stats: +30.25 points (+2.39%) to close at 1296.32
NYSE Volume: 1.246B (-2.93%)

Up Volume: 969.344M (+735.169M)
Down Volume: 270.289M (-773.465M)

A/D and Hi/Lo: Advancers led 2.85 to 1
Previous Session: Decliners led 3.2 to 1

New Highs: 48 (+28)
New Lows: 115 (+2)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

Not a powerhouse what with its lower volume and squeaking past the 50 day EMA (1294) and closing at the 50 day SMA, but it made a new high on this rebound and delved deeper past the January and March 2008 lows. There is still a mountain of resistance overhead starting rather close at 1315 and running up to 1375 or so. The financials dug a deep hole for the large caps and they fell into it. Getting out is proving to be difficult as SP500 lags on the rebound. It is making headway, but it is letting the techs and smaller caps doe the work.

Speaking of small caps, SP600 (+2.93%) shot past its February peak and the interim resistance, as well as its 200 day SMA. Impressive strength as they take out resistance levels and move toward the early June peak about 14 points away. If measured by the Friday gain, that would be just a day and one-half away. As noted above, small caps are joined at the hip with the economy, and if they put in a serious rally with serious breakouts that bodes well for the economy.

SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg

SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg


DJ30

Nice higher low and then a push through the old trendline from late 2004 as well as the 50 day EMA (11,686). It tapped the important 11,750 resistance on the high and faded back to close modestly off that level. That represents the March bottom and is significant resistance. After that 12K bears watching as there is minor price resistance, psychological resistance, and that is roughly 50% up off the July low. Climbing out of a pit is never easy as it is a constant test of buyers' will to crawl on out.

Stats: +302.89 points (+2.65%) to close at 11734.32
VOLUME: 212M shares Friday versus 229M shares Thursday. No surge in volume to match the impressive price gains.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg


MONDAY

Boatloads of economic data next week, but does any of it matter what with the dollar soaring and oil plunging? June trade and inventories, July retail sales, CPI, industrial production. Most of this data was compiled before the really big decline in oil and rise in the dollar. Some of the July data reflects falling oil, but the big impacts of these big declines will come later.

But that still doesn't obviate the import of this data. If it is stronger than expected then that means that it will likely get stronger given lower prices for energy and more purchasing power thanks to a stronger dollar. The economy, while in a recession from the standpoint of the size of the decline from the highs, is not a textbook recession, meaning it is rather shallow. If the economic data is improving as it has been in fits and starts, that indicates the recession may run its course without ever entering official bear market territory given the lower costs even if the stimulus checks have, as Wal-Mart noted last week, run their course.

The market will lead before the economic data turns, and the indices are up off the July lows. Not a powerful move but a string of higher lows and a move through some initial key resistance points is a good start. Still a lot of technical resistance to get through and more leadership is needed, and that leaves doubts about the move ultimately being the ONE. As noted early on in the summary, however, it is more than enough to play to the upside and make us some solid scratch. You have to like the small caps making moves again; out of the 2000-2001 recession they took the lead (as they should coming out of recession) and made us a lot of money. It is a nice bonus they are moving along with the large cap techs as that gives the market a bit more backbone, something it finally started to show over the past two weeks. Still developing, but building some character here.

Now oil and gold dropped like rocks the past week and gold gapped lower Friday down to the May low where it found support and rebounded on into July. It will likely attempt some kind of last stand at that point, and it would be normal for the dollar to retrench a bit and oil to bounce a little as well. That means the market retrenches a bit as well as oil's loss and the dollar's gain has been the market's gain. Pretty normal. The important thing for the market, of course, is how it handles the rebound attempts by the commodities. Thus far it has overcome each round of bad news and made higher lows. When the dollar, gold and oil backtrack a bit it will have its chance to do it again.

The market has run nicely the past two weeks and we picked up some nice upside. As noted Thursday, at this stage of the rally the prudent investor scales back a bit, not chasing stocks that have made good moves as they are prone to come back after just a bit more upside, particularly when gold and oil retrench some. Thus we need to be patient with new upside but that does not mean there are not stocks ready to break higher. More and more stocks are trying to join in the upside after building some good bases and they breakout in waves as the market advances, indeed, helping drive the advance. Accordingly we will, as always, have new plays ready at the offing, and if they make their breakouts we can start building some positions.


Support and Resistance

NASDAQ: Closed at 2414.10
Resistance:
2419 is the January 2008 peak and the early February peak
The 200 day SMA at 2439
2451 is the August closing low
2500 from interim August lows.

Support:
2392 is the April 2008 peak
2388 is the June 2008 low
2386 is the August 2007 intraday low
The 90 day SMA at 2386
2378 is the mid-February peak; 2379 from the October 2006 peak
2370 from the April 2006 peak
2343 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
The 50 day EMA at 2342
2340 from the March 2007 low
2286 is the first April 2008 gap up point.
2261 is a March 2008 interim low
2202 is the January 2008 low
2155 is the March 2008 low


S&P 500: Closed at 1296.31
Resistance:
1317 from the February low
1320 is a 50% retracement of the May to July selloff
1324 is the April low
1331 is the June low
1348 is an ancient trendline
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 200 day SMA at 1375
1387 is the April 2008 intraday high
1396 is the February 2008 peak
1406 is the August and November 2007 closing low

Support:
The 50 day EMA at 1293
1285 is the recent July peak
1270 is the January low
1257 is the March low
1244 is an August 2005 peak
1240 to 1221 are September 2005 peaks1234 is the July 2006 low
1234 is the late July low
1224 is the June 2006 low
1176 from the Q4 2005 lows
1167 is the January 2005 low
1154 from the May 2005 lows
1142 is the 2005 closing low

Dow: Closed at 11,734.32
Resistance:
11,731 is the March 2008 low is bending
11,982 is a 50% retracement of the May to July selloff
12,050 from the March 2007
12,070 from the early February 2008 lows
The 90 day SMA at 12,150
12,250 from late March 2007 lows
The 200 day SMA at 12,512
12,518 is the August intraday low
12,573 is the mid-February high
12,743 is the November low
12,750 to 12,768 is the February 2008 peak and a series of lows and highs from August 2007
12,786 is the February 2007 peak
12,845 is the August closing low
13,092 is the December 2007 intraday low
13,133 is the May 2008 high

Support:
The 50 day EMA at 11,686
11,670 is the May 2006 intraday high; 11,642 closing
11,639 is the 2004/2005 up trendline
11,634 is the January intraday low
11,317 from March 2006
11,131 is the late July 2008 low
11,061 from February 2006
10,912 peak from March 2005
10,854 from December 2004
10,701-10,705 from July 2006, July 2005


Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

August 12 - Tuesday
Trade Balance, June (8:30): -$61.9B expected, -$59.8B prior
Treasury budget, July (2:00): -$69.0B expected

August 13 - Wednesday
Import prices ex-oil, July (8:30): 0.9% prior. Will they fall given the oil decline?
Retail sales, July (8:30): 0.5% expected, 0.1% prior
Retail sales ex-auto (8:30): 0.6% expected, 0.8% prior
Business inventories, June (10:00): 0.5% expected, 0.3% prior
Crude oil inventories (10:35): +1.6M prior

August 14 - Thursday
CPI, July (8:30): 0.4% expected, 1.1% prior
Core CPI (8:30): 0.2% expected, 0.3% prior
Initial jobless claims (8:30): 455K prior

August 15 - Friday
New York Empire State PMI, August (8:30): -5.0 expected, -4.9 prior
Net foreign purchases, June (9:00): $67.0B prior
Capacity utilization, July (9:15): 79.8% expected, 79.9% prior
Industrial Production, July (9:15): 0.0% expected, 0.5% prior
Michigan sentiment, August preliminary (10:00): 62.0 expected, 61.2 prior

By: Jon Johnson, Editor
Copyright 2008 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Job Report Relieves and Worries Market

SUMMARY:
- 'Benign' jobs report spares market a selloff, finishing off the week basically where it started.
- Jobs report relieves and at the same time worries the market.
- ECRI turning back down after an early summer pop.
- Lack of clear thinking: proposed energy plans play the shell game.
- The slow process of working through a drawn out bottom.

Market struggles Friday, just as it did all week.

Investors worried over the jobs report given the surging weekly jobless claims the past month and the unexpected jump reported Thursday (448K, a five year high). As it turned out, non-farm payrolls fell, but at -51K that was much better than expected (-75K) and the market's need for Prozac diminished. That is no the end of this story, but for a market extremely worried about the report, enough so to sell off ahead of it in the last half hour of Thursday, it was enough for the day.

Earnings were not that great as CVX missed, following in XOM's footprints. The conspiracy theorists would say this is all planned given that Congress is talking windfall profits. They don't realize that these big companies are in both ends of the business (production and refining/marketing), and indeed even more than that with their chemical businesses, and thus while higher product prices may help the production end, they kill the refining/marketing and chemicals end of the business. Thus they operate on thinner margins than real estate, software, tech in general, and most other industries outside of grocery stores. But once more I digress; more on this later. APA (gas production) beat big time. See the difference? Oh, but I digress again. How about this: GM missed big as well. Earnings are better than expected, but they are very hot or very cold. That makes for a difficult mistress.

The national ISM moved up to 50.0, the breakeven point, and while that beat expectations, it was less than June's 50.2. Nonetheless, after a rather dismal Q1, manufacturing is firming, and that is one of the areas that showed early indications the economy was turning back in 2002. Wish the market was in better shape with more leadership ready to step up; it is trying to lay some of the groundwork now, however. Oil was up as well, rising over 128 on the high before setting at 125.10, +1.05. It held 122 support and bounced. The first bounce was expected and the market still rallied on that day. Now it is clearer that oil is going to rebound just as the market did from its selling. There is still enough worry about oil, however, especially with its intraday streak to 128, that even a bounce is wearing on investors as the action last week showed.

This was all enough to stymie the market on Friday and indeed it was the same news that kept the indices flat all week. Yes there were ups and downs, and significant triple digit moves on the Dow just about each session. It was like running with my dog: I run 4 miles while the dog is all over the map, putting in two or more times the mileage. Lots of effort, nothing more to show for it.

TECHNICAL. Another session of significant intraday moves. NASDAQ covered over 40 points high to low and back up. DJ30 150 points. High to low, to back up but not to session highs. Lots of running, going nowhere. Think of the dog, but the market is not nearly as loyal and faithful.

INTERNALS. They matched the market with a dead heat in advancers to decliners on both NYSE and NASDAQ. Volume was lower; typical of a summer Friday. New highs and new lows were not worth measuring. Despite the up and down moves intraday it was just boring. I had to touch off an air horn in the trading room to wake everyone up.

CHARTS. Up and down intraday, up and down all week, ending up going nowhere. In the end the indices managed to hold more or less near near support. That continues the life of this move and that of the relief bounce. That bounce was knocked around early in the week but it hung on by its nails for another try this coming week.

LEADERSHIP. Desperately seeking more leadership. Medical and healthcare were the leaders again last week as the rest of the market wound up and down. Transports sold back to test after some strong upside runs. Industrials tried to run but they faltered; still trying to get some base building going and they are still in the early stages. Some financials are turning the corner, setting up decent bases. After the MER trash found some buyers and the market realized they could start valuing the garbage (at 22 cents on the dollar), financials suddenly felt the earth firm. Techs are trying to form up as well, but it is very scattered and they struggled again on Friday.

SUM. All of the above shows it was a struggle for the indices all week. They looked ready to roll over early on but then hung on at the precipice. Tenacity is noteworthy. Holding off the heavy selling to end the week to, still in position to make another higher low at near support and continue the relief bounce next week. If it does that allows stocks to stretch out laterally and continue working on bases, an essential part to the bottoming process. It is up and down, sweat and toil, feast and famine as the buyers and sellers wear each other out. That is what we are seeing now with these big downside then upside sessions. They are working out their differences, and as they do individual stocks have time to try and establish the foundation for a move higher. At this point success is still up in the air with the indices still simply in a relief bounce from the rough May to July selloff, struggling to get higher. As long as this action continues we look for those stocks that have built good bases, and if they break higher we move their way. Financials are starting to break trendlines as they try to put in their bid for some market leadership.


THE ECONOMY

Jobs report better than expected, but then again, not.

The headline everyone hangs on, non-farm payrolls, slid in a bit better than feared (-51K versus -75K expected, -51K prior). Despite the relief that jobs didn't fall 100K or more per the whisper, unemployment rose to 5.7% from 5.5% (5.6% expected). Even though the economy lost 'only' 51K jobs in July, more people entered the workforce looking for jobs, but they didn't find them. Thus they were counted in the survey as looking for work but not finding it.

Rising unemployment is not great, but this is all a lagging indicator. What do the leading indicators of this lagging indicator suggest about the future? The average hours worked is telling. It has held steady at 33.7 in May and June, and that was down from 33.8 for several preceding months. That is not the level nor the trend that indicates jobs growth is about to ramp and is indeed a reversal of the prior modest strengthening. Historically hours worked needs to rise closer to 35+ to build the pressure to create more jobs. Why? When employees average this number that means they are working overtime at higher cost to the employer and start getting overloaded. Employers have to hire in order to avoid losing the efficiency they have gained with fewer employees by working them too hard for too long.

In July the workweek fell to 33.6. While one month is not definitive, it is clear that the pressure to push hours higher is not building. Moreover, part-time workers jumped again, pushing the gain this year to 1.4M. Nothing wrong with that except this statistic tracks people wanting to work full time but having to settle for part time work. More evidence there is simply not any real upside pressure on jobs production.

What does this mean for the economy? Not much about its future because jobs lag what the economy does. Jobless claims tend to spike at the end of a cycle, but they can stay up for awhile so as a timing mechanism it is more like a calendar than a stopwatch. On the other hand, the jobs losses are nowhere near as weak as in past recessions. Thus while the lack of improvement is frustrating to many, the decline has been shallow, and if the economic numbers continue their plod toward better times, jobs should not decline too much more.


ECRI heading back down.

While ECRI's inflation gauge continues to decline, moving to a six year low in July and consistent with a shallower recession as we are seeing, its leading US annualized index slid lower again, down to -7.6%) last week, continuing a slide that started in late May. ECRI had bounced in April into May, but it is now backsliding.

At this level ECRI is not predicting any recovery near term. Indeed it needs to get much better to indicate any recovery at any point down the road. The overall levels are not saying deep, nasty recession, but they are also not saying this one is about to end.

This conflicts somewhat with the improving economic data in certain areas. The thing about ECRI is, however, is it is pretty darn accurate in gauging slowdowns and recoveries. Thus the sag in the Leading index suggests nothing is over near term.


Energy 'plans' just ain't making it. Why doesn't anyone call BS?

The presidential candidates are defining their energy plans more with one adding some parts and the other simply clarifying the same position. Listening to some pundits argue over what candidate had the better plan I simply had to call BS. Why their opponents or the moderators didn't point out the glaring problems is anyone's guess.

McCain first proposed a federal tax holiday on gas. It won't produce anymore gasoline, but after hearing the other side, it has its benefits if you have to choose between the two. More recently McCain has pushed for drilling offshore and in other areas, citing changed conditions ($4/gallon gas) as a good reason for change. Of course why he insists on preserving the ANWR wasteland (where maybe 16 people visit annually) from a few small drilling pads and production sites but instead pushes for offshore drilling in environmentally fragile Florida or California coastlines that we all see and enjoy every day is beyond most practical mindsets. It does have the effect of ultimately increasing reserves, and despite shrill claims otherwise, it will immediately impact price if we make this kind of commitment, expedite the process, etc.

Obama is for conservation as is McCain. We all are. He is also for a windfall profits tax on oil companies on the theory that high product prices simply fell into their laps. That sure sounds similar to the tech companies in the 1980's, real estate in the mid-1980s and again in the 1990's. Indeed any industry goes through periods where it prints money. Let's not forget the agriculture, steel, coal, copper and other industries that are reaping a great reward from rising prices. Hell, tax them all too. They just happen to be in the right place in the right time and it has nothing to do with their business model and the like, right? Of course he is not going that far. Why bother when the oil companies are so easily hated by many? If he went further everyone would call it socialism, planned economics, etc., and that is not good for winning elections, at least in the US.

Obama plans to tax oil companies' 'excess' profits due to the rise in prices (can you imagine the nightmare of accounting for what is excess versus your prior profit levels? More lawyer and accountant retirement programs as gifts from Congress) and give some of the money to the 'hard workers' in our society (he cannot pass it all along; the feds have to take their cut in the form of paying for the bureaucracy). 'Hard workers' apparently doesn't include those who do in fact work very hard but in doing so make more money. I know of no one who is part of the so-called rich who doesn't work hard 12 to 16 hours a day. That one always puzzles me. In any event the beneficiaries of this tax and rebate are to use that money to go out and buy gasoline so they can supposedly buy more goods that they would not buy if they instead stay at home. An Obama energy advisor said that was the goal: get them money to get them out and drive more (he bemoaned the low number of miles driven this year due to high gasoline prices) and go about the business of the economy.

Stop. I call BS. You tax oil companies because they make too much, give the money to 'hard workers' so they can go out and buy more gasoline, putting the money right back into the oil companies' hands? And let's face it: Congress hates XOM, CVX, all the big integrated companies that produce, refine and market oil and oil products. They are the target of this idea. In short, the money goes back into their hands where it came from in the first place.

First, this doesn't incent production of another drop of oil or gas. It is just a shell game, a movement of money from one source to a beneficiary, then back to that source, at least according to the Obama energy analyst lobbying for the measure. Second, the real impact is tax revenue for the federal government by creating three new taxation points. The first is the initial windfall tax. The second is when the recipient buys the gas and the feds take their cut through the federal excise gasoline tax. The third is when the oil companies are taxed, again on the profits from selling the gasoline. The incredible federal shell game. No new supply, no economic stimulus, just more federal revenues taken from the economy at a time it needs them.

While McCain's tax holiday does not create any more gas or oil, it does help accomplish one of McCain's goals, i.e. slowing the revenues of the federal government and thus help curtail spending by virtue of the theory if you don't get it you cannot spend it. Well, that doesn't work with our Congress, but at least it keeps more money in the pockets of those that earn it, and that helps the economy.

As you can see, neither plan really attacks the problem or at least the whole problem. I keep waiting for McCain to make the next logical step and that is saying that the extra drilling is just a stopgap to buy time while we incent our great ingenuity and entrepreneurship to devise a means to remove our vehicle fleet from the need for fossil fuels. That would be a Reagan-esque moment and potentially quite inspiring. Instead we have a couple of plans that don't get us where we need to be and are as inspiring as any new tax would be. It won't create incentives to find solutions, it will just create incentives to avoid the tax.


THE MARKET

MARKET SENTIMENT

VIX: 22.57; -0.37
VXN: 25.97; -0.27
VXO: 24.26; -0.41

Put/Call Ratio (CBOE): 0.99; +0.04. Spent all but one day below 1.0 on the close. That 1.0 is the point where there is enough anxiety about the downside to suggest a bounce or something more. Plenty of backlog during the May to June selling helped the market bounce higher.


Bulls versus Bears:

For the second time this year bears are crossing above bulls, doing so basically where they did in March on their way to much more extreme readings just about the time the market made the March low and started the last rally. Positive for the market and if SP500 is going to hold the long term trendline is the place to do it.

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

Bulls: 30.0%. Up modestly from 29.2%. On a rise, but still below the 35% level, below which is considered bullish. Up from 27.8% on the low this round, moving back up toward the 31.9% a month back and the 30.9% low hit in March. Steep drop from a rebound high at close to 50% on the run through May. In March the indicator did its job with the dive below 35% and the crossover with the bears. Now it is going above and beyond. Bulls and bears have crossed over again, doing so even before the prior lows are hit. The bulls and bears were eye to eye in mid-February and have crossed. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator. This is smashing that. For reference it bottomed in the summer 2006, the last major round of selling ahead of this 2007 top, near 36%, and 35% is considered bullish.

Bears: 50.0%. Still rising as bears remain worried, up from 49.4%. Bears, despite what the bulls are doing, continue to increase, up from 48.9% that was up from 47.3%, 44.7% and 39.3% before that. A steady, strong rise and still going. Well above the bullish level and the highest since 1995. Again, that is one of the best indications that sentiment is getting extreme on the negative side. It is again past 35%, the level that historically indicates too much pessimism. As with the bulls the jump in bears did its job after hitting 44.7% in the third week of March that was up from an already freakishly strong 43.3% the week before. Up sharply from a low of 19.6% on the last rally. Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). This is a huge turn, unlike any seen in recent history.


NASDAQ

Stats: -14.59 points (-0.63%) to close at 2310.96
Volume: 2.176B (-9.32%). Volume falls below average to end the week after three sessions above average midweek as NASDAQ moved higher though Thursday it reversed off its high ahead of the jobs report. Overall decent price/volume action for the week.

Up Volume: 750.389M (-241.726M)
Down Volume: 1.371B (+18.145M)

A/D and Hi/Lo: Decliners led 1 to 1
Previous Session: Decliners led 1.15 to 1

New Highs: 36 (-26)
New Lows: 93 (-19)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

Sold off below 2300 as well as the 10 and 18 day EMA at roughly coincident prices, then rebounded to close over those levels. Down for the session of course but also 24 points off its low. Still trending higher though slowly, and still finding it very difficult to get over the 50 day EMA (2339) and the old 2004/2006 trendline. Techs definitely struggled Friday. They are starting to set up more bases, but they also have a ways to go.

NASDAQ 100 (-1.22%) was the worst offender Friday. Sold off sharply and did rebound to recover half the losses. Still in its 4 week rounded bottom but had a tougher time of it Friday as the new month started; no new money coming into the large cap techs the first day of August.

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg


SP500/NYSE

Stats: -7.07 points (-0.56%) to close at 1260.31
NYSE Volume: 1.226B (-15.78%). Volume fell off the table to end the week after at least one decent session midweek on an upside day.

Up Volume: 537.614M (+76.701M)
Down Volume: 676.247M (-311.41M)

A/D and Hi/Lo: Advancers led 1 to 1
Previous Session: Decliners led 1.58 to 1

New Highs: 35 (-6)
New Lows: 141 (+28)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

Sold through the 10 day EMA on the close but still in position to make a higher low as it did in late July. Stalled out at the mid-July peak on the week, having a hard time getting past the March and January 2008 lows. It is trying to continue the rebound toward 1300 and even 1320ish. It is a struggle but the financials are working on bases and thus it is a back and forth, slow effort, and at this juncture it is not a pretty pattern, just a rebound.

SP600 (+0.53%) was a leader on the rally and it too is now attempting to make a higher low, tapping the 18 day EMA on the low and rebounding to post the only gain of the indices. Nice doji with tail, setting up a break higher for further upside leadership.

SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg

SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg


DJ30

The blue chips sagged a bit more to end the week, holding at some interim support at 11,250 on the low. Made a lower high this past week. A very indecisive pattern right now, very much a rebound move looking for a reason to try and hang on but not finding it just yet.

Stats: -51.7 points (-0.45%) to close at 11326.32
VOLUME: 189M shares Friday versus 220M shares Thursday. Below average volume all week as the Dow thrashed around with big point swings. Like a prize fight with pillows tied to the fighters' hands. No distribution, and at this stage of the game that is not bad.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg


MONDAY

Big week of data. More earnings. Personal income and spending, ISM services, pending home sales, production, and the granddaddy of them all, a one-day FOMC policy meeting. My bellybutton has been puckering and un-puckering in anticipation (email me if you know what show that is from).

Oil remains a dominant player after it held support at 122 and did not just go ahead and collapse. It is no mystery it has bounced here; the selling was sharp. Friday it closed well off its intraday high in a showing of some weakness. It will likely try higher again for another two to three sessions up toward 130ish, then it should keel over once more, and the test of 122 will tell the conscience of the king of industry. Of course Friday it closed below the 90 day SMA after punching through and testing close to the 50 day SMA so it may just collapse. The point: we still see oil falling again and falling significantly.

That will continue to be market friendly action and help it attempt to base out and find some new leadership. We are watching the financials try to develop; picked up some WFC last week and are looking at some others for this week if they can continue to reverse the nasty downtrend. That is the way it is going to have to be for the upside: locating those stocks that are setting up new bases and getting some on the move out and then on the test. The more that do this the better the prognosis for the market. It needs more leadership; a lot more. If the financials continue their improvement, that is very good for the market as they were the bad boys that kicked out the legs from under the market attempts to move higher.

There are still sentiment indicators that are not there such as the VIX. The index patterns are still weak. Leadership is the main factor and it is still thin. If the market continues to work on its base and more stocks set up in good accumulation patterns that how bottoms, and more importantly, new strong runs are born. This move here looks more like just part of the process with likely more downside in the future before it is done. The lack of aggression in the selling last week (in terms of volume) indicates the sides are fairly even in strength for now, and if this continues the market can put in a quiet bottom, but that doesn't mean that there won't be price swings along the way. That is par for, dare we say it, August and a bear market.


Support and Resistance

NASDAQ: Closed at 2310.96
Resistance:
The 50 day EMA at 2339
2340 from the March 2007 low
2340 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
2358 is a 50% retracement of the June to July selloff.
2370 from the April 2006 peak
2378 is the mid-February peak; 2379 from the October 2006 peak
The 90 day SMA at 2383
2386 is the August 2007 intraday low
2388 is the June 2008 low
2392 is the April 2008 peak
2419 is the January 2008 peak and the early February peak
The 200 day SMA at 2450
2451 is the August closing low
2500 from interim August lows.

Support:
The 18 day EMA at 2304
2286 is the first April 2008 gap up point.
2261 is a March 2008 interim low
2202 is the January 2008 low
2155 is the March 2008 low


S&P 500: Closed at 1260.31
Resistance:
1270 is the January low
1285 is the recent July peak
The 50 day EMA at 1297
1317 from the February low
1320 is a 50% retracement of the May to July selloff
1324 is the April low
1331 is the June low
1345 is an ancient trendline
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 200 day SMA at 1381
1387 is the April 2008 intraday high
1396 is the February 2008 peak
1406 is the August and November 2007 closing low

Support:
1257 is the March low
1244 is an August 2005 peak
1240 to 1221 are September 2005 peaks1234 is the July 2006 low
1224 is the June 2006 low
1176 from the Q4 2005 lows
1167 is the January 2005 low
1154 from the May 2005 lows
1142 is the 2005 closing low

Dow: Closed at 11,326.32
Resistance:
11,634 is the 2004/2005 up trendline
11,634 is the January intraday low
11,670 is the May 2006 intraday high; 11,642 closing
The 50 day EMA at 11,716
11,731 is the March 2008 low
11,982 is a 50% retracement of the May to July selloff
12,050 from the March 2007
12,070 from the early February 2008 lows
The 90 day SMA at 12,199
12,250 from late March 2007 lows
12,518 is the August intraday low
The 200 day SMA at 12,566
12,573 is the mid-February high
12,743 is the November low
12,750 to 12,768 is the February 2008 peak and a series of lows and highs from August 2007
12,786 is the February 2007 peak
12,845 is the August closing low
13,092 is the December 2007 intraday low
13,133 is the May 2008 high

Support:
11,317 from March 2006
11,061 from February 2006
10,912 peak from March 2005
10,854 from December 2004
10,701-10,705 from July 2006, July 2005


Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

August 4 - Monday

Personal income, June (8:30): -0.1% expected, 1.9% prior
Personal spending, June (8:30): 0.5% expected, 0.8% prior
Factory orders, June (10:00): 0.7% expected, 0.6% prior

August 5 - Tuesday
ISM Services, July, (10:00): 48.0 expected, 48.2 prior
FOMC policy statement (2:15)

August 6 - Wednesday
Crude oil inventories (10:35): -81K prior
Consumer credit, June (3:00): $6.0B expected, $7.8B prior

August 7 - Thursday
Initial jobless claims (8:30): 448K prior
Pending home sales, June (10:00): -1.3% expected, -4.7% prior

August 8 - Friday
Q2 Productivity, preliminary (8:30): 2.6% expected
Wholesale inventories, June (10:00): 0.6% expected, 0.8% prior

By: Jon Johnson, Editor
Copyright 2008
All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com